You just stumbled across the term rent deposit while preparing for the move or reading the rental agreement? In Switzerland as well as in many other countries, it’s normal that tenants pay a rent deposit. But how does it work and what’s the difference between a rent deposit and a security deposit insurance?

rent deposit: money and house


Rent Deposit as Security

The rent deposit is a certain amount of money that you transfer to a bank account. As soon as the tenancy is over, you usually get the same amount back. The money serves the renter as security. You might be very trustworthy, but the landlord probably had problems in the past. It happens, that people don’t want to pay for additional costs or damages they caused. In those cases, the landlord can use the money to pay for those things. Landlords are allowed to demand three months’ worth of rent (including additional costs) as a rent deposit.


What You Should Look out for

Don’t panic. The deposit that you transfer to your landlord can’t be used for their personal needs. By law, it’s required that the money isn’t transferred to the landlord’s private account. Instead, the money is wired to a blocked account that is registered to your name. Why that’s important? Simple: If the landlord becomes insolvent and the money is on their account, you’re never going to see the money again. If it’s on a blocked account under your name, however, then the landlord won’t be able to touch it even if he goes insolvent.

When depositing the money, it’s important to insist that every information is disclosed, such as the name of the bank and the description of the account. If you feel that something isn’t okay with the deposit, ask your landlord via registered mail to send you the details of the bank account. It’s also possible to keep the deposit in a bank of your choice and sending the certification to the landlord. It’s best to agree on something you both are comfortable with.

You already need to transfer the deposit before the beginning of the tenancy. Make sure to pay on time, otherwise the landlord can refuse to hand over the keys to the new apartment and that would cause irritating delays.


When Do You Get Your Money back?

Usually, you’ll get your money back after handing over the apartment. By tenancy law, you’ll get the money back after fulfilling the deposit. That means that all costs are paid and there are no more damages to be taken care of. In that case, the pay-out should be possible within 30 days.

You’ve fulfilled all the requirements but didn’t get the deposit back? In that case, you can turn to the arbitration authority. It’s also possible to wait for a year. After that time, you can close the account and get the money without the landlord.


Alternative: Rent Deposit without a Bank Deposit

At the end of the tenancy, you get the money back. But still, three months of rent is quite a bit of money. In combination with the other costs that come with a move, that’s quite a big sum you’ll have to pay.

The alternative to the bank deposit is the security deposit insurance. The difference is, that you don’t need to transfer any money to a bank. Instead the insurance pledges to pay the damages in the end. There are quite a few providers from whom you can choose from. First, you’ll have to pay an entry premium. And from that moment on, you’ll pay an annual fee to the insurance (about 5 percent of the deposit). The insurance guarantees that all the costs will be paid to the landlord. The sum, however, must be reimbursed to the insurance. And you won’t get the annual paid fee back neither. So even if it’s called security deposit insurance, it’s different from classic insurances.

Benefits of the Security Deposit Insurance

  • It’s fast: The transaction of the rent deposit can usually be done quickly.
  • No burden of two rent deposits: Sometimes, the rent deposit of the old apartment is still sitting in the bank account and you already need to pay the deposit for the new apartment. With the security deposit insurance, you are more flexible to get the things you want for the new apartment.
  • Beneficial for financially less strong people: If tenants don’t have the capital, a security deposit insurance can help.

Disadvantages of the Deposit Insurance

  • You pay more money: The rent association advises people to borrow money from friends/relatives instead of getting the security deposit insurance. The reason is that you pay more with the insurance. You pay annual fees and you have to pay the costs if there are damages, even though the insurance takes care of those costs at first.
  • Long-term tenancy can become expensive: Especially if you plan to stay in the apartment for a long time, it’s not worth getting a security deposit insurance.
  • Landlords can decide on the provider: Deposit insurances charge differently. If the landlord prefers one provider, it’s possible, that you won’t get the cheapest provider.


Always Check Twice when It Comes to Money

You shouldn’t be casual about the transaction of the rent deposit. If there are mistakes, the money can easily vanish. Check all the documents properly and also read what’s written in the rental agreement about the rent deposit. Only sign after checking everything and then there’s nothing stopping you from getting the keys to the new apartment!